Solid Gross Margin, Cost Savings Contribute to Better-Than-Expected Bottom Line

NEW YORK, Aug. 21 /PRNewswire-FirstCall/ -- Ann Taylor Stores Corporation (NYSE: ANN) today reported results for the second quarter of fiscal 2009, ended August 1, 2009, which reflected a solid gross margin rate, significant expense savings and better-than-anticipated sales at LOFT.

The Company reported earnings per diluted share of $0.06 in the second quarter of 2009, excluding after-tax restructuring charges of $21.6 million, compared with earnings per diluted share of $0.53 in the second quarter of 2008, excluding after-tax restructuring charges of $2.0 million. On a GAAP basis, including the aforementioned restructuring charges, loss per diluted share was $0.32 in the second quarter of 2009, compared with earnings per diluted share of $0.50 in the second quarter of 2008.

Commenting on the results, Ann Taylor President and Chief Executive Officer Kay Krill stated, "During the quarter, we continued to be very disciplined in managing our business, with a relentless focus on keeping our inventories clean, controlling expenses and maximizing gross margin dollars. This strategy served us well, and with better-than-expected sales at LOFT and the ongoing benefit of our cost savings initiatives, we were able to deliver a bottom line result that was ahead of our expectations. In addition, I am pleased with the Company's strong financial position, including the increase in cash on hand since fiscal year-end.

"We are entering the third quarter with a very healthy mix of inventory at both brands that is highly penetrated in new, fresh product for Fall selling. LOFT began the season with a compelling offering of the feminine, casual styles at great value that we are known for, and at Ann Taylor we have begun to flow product into the stores that represents our new brand positioning, with a full Fall lineup expected in stores at the end of the month. Overall, we have strategically positioned our Fall merchandise receipt plans conservatively, with an emphasis on preserving gross margin in a soft consumer spending environment that is expected to continue to affect our top line."

Fiscal Second Quarter Results

Net sales for the second quarter of fiscal 2009 were $470.2 million, compared with net sales of $592.3 million in the second quarter of fiscal 2008. By division, net sales at Ann Taylor were $108.9 million in the second quarter of 2009, compared with net sales of $185.7 million in the second quarter of 2008. At LOFT, net sales were $250.5 million in the second quarter of 2009, compared with net sales of $299.1 million in the second quarter of 2008.

Comparable store sales for the quarter declined 22.5% versus the prior year. At Ann Taylor, comparable store sales declined 38.0%, reflecting the continued impact of the economy on the women's apparel sector and the final few months of the Spring product assortment, which was not reflective of the brand's new direction. At LOFT, comparable stores sales declined 15.4%.

Gross margin, as a percentage of sales, was 52.4%, equivalent to the gross margin rate achieved in the second quarter of 2008. This solid gross margin performance reflected the success of the Company's strategy to conservatively position inventory levels and an improved performance at LOFT, partially offset by aggressive promotional activity at Ann Taylor to clear through Spring inventories in advance of the Fall product launch.

Selling, general and administrative expenses for the second quarter of 2009 declined by approximately $20.3 million, or approximately 8% versus year-ago, to $240.0 million, relative to a 2% decline in square footage for the quarter. This significant decline in expenses reflected restructuring program savings, as well as continued aggressive management of expenses.

During the quarter, the Company recorded a pre-tax restructuring charge of $31.1 million, associated with its previously announced strategic restructuring program, compared with pre-tax restructuring charges totaling $3.1 million in the second quarter of 2008. Of these pre-tax second-quarter restructuring charges, approximately $21 million were costs associated with the optimization of our real estate portfolio and approximately $10 million were costs associated primarily with the further streamlining of the organization.

Excluding restructuring charges, the Company reported operating income of $6.0 million for the quarter, compared with operating income of $49.7 million in the second quarter of 2008. On the same basis, the Company reported net income in the quarter of $3.6 million, or $0.06 per diluted share, compared with net income of $31.2 million, or $0.53 per diluted share, in the second quarter of 2008.

On a GAAP basis, the Company reported an operating loss of $25.2 million in the second quarter of 2009, compared with operating income of $46.5 million in the second quarter of 2008. On the same basis, the Company reported a net loss of $18.0 million, or $0.32 per diluted share, in the second quarter of 2009, compared with net income of $29.3 million, or $0.50 per diluted share, in the second quarter of 2008.

The Company ended the second quarter with $129 million in cash and cash equivalents, excluding the benefit of $75 million of borrowings outstanding under its revolving credit facility. During the quarter, the Company paid down $50 million on its revolving credit facility.

Total inventory per square foot at the end of the second quarter of 2009 was down 28% versus year-ago, reflecting a 30% decline at Ann Taylor and a 30% decline at LOFT.

During the second quarter of 2009, the Company opened two LOFT stores, one Ann Taylor Factory store and one LOFT Outlet store and closed three Ann Taylor stores and seven LOFT stores. The total store count at the end of the second quarter was 933, comprised of 315 Ann Taylor stores, 508 LOFT stores, 92 Ann Taylor Factory stores and 18 LOFT Outlet stores.

During the first quarter of 2009, the Company adopted FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities, which required recasting of earnings per share data in prior periods to conform to current periods. The Company indicated that there was minimal impact from this accounting change in the 2008 and 2009 second quarter and first half periods.

First-Half Fiscal 2009 Results

Net sales for the first six months of fiscal 2009 were $897 million, compared with net sales of $1,184 million in the first half of fiscal 2008. By division, net sales at Ann Taylor were $216.3 million in the first half of 2009, compared with net sales of $383.3 million in the first half of 2008. At LOFT, net sales were $473.8 million in the first half of 2009, compared with net sales of $594.1 million in the first half of 2008.

Comparable store sales for the first half of 2009 declined 26.6%, with a 40.4% decline at Ann Taylor and a 19.8% decline at LOFT.

Gross margin, as a percentage of net sales, increased 1.1 margin points to 53.9% in the first half of 2009, compared to the first half of 2008. Selling, general and administrative expenses declined by approximately $51.7 million, or nearly 10% versus year-ago, to $478.8 million in the first half of 2009, relative to a square footage decline of 2%.

During the first six months of 2009, the Company recorded pre-tax restructuring charges totaling $32.1 million, compared with $6.9 million in the first six months of 2008. On an after-tax basis, restructuring charges totaled $22.4 million, or $0.40 per diluted share, in the first six months of 2009, compared with restructuring charges of $4.3 million, or $0.07 per diluted share, in the first six months of 2008.

Excluding the aforementioned pre-tax restructuring costs, operating income in the first half of 2009 was $4.2 million, compared with operating income of $94.6 million in the first half of 2008. On a GAAP basis, including restructuring costs, operating loss in the first half of 2009 was $27.9 million, compared with operating income of $87.7 million in the first half of 2008.